"Applied's Layoffs Signal a Long Winter for Equipment Makers"
By Tish Williams
Senior Writer
12/12/2001 07:33 PM EST
While chipmakers bask in a warmer-than-expected fourth quarter, chip equipment makers are still storing up acorns for the winter.
Applied Materials (AMAT:Nasdaq - news - commentary - research - analysis) announced Wednesday after the close it will lay off 1,700 employees, or 10% of its workforce. Workers will be notified Thursday. Just under three months ago, Applied pegged 10% of the company -- then about 2,000 people -- for departure. The company took a $149 million restructuring charge in its fiscal fourth quarter ended Oct. 28 for costs associated with the reduction.
Applied's revenue dipped 20% sequentially in its fourth quarter to $1.26 billion, a 57% drop from the fourth quarter of fiscal 2000. Deutsche Banc Alex. Brown analyst Tim Arcuri interprets Applied Material's latest headcount cut as a signal that management does not see business improving in the near term.
"The company has held off for the last year, trying to avoid what happened back in the 1998 cycle" when it laid off workers just before business bottomed and then began to revive. "It's difficult to see them changing their strategy and cutting heads if they see business picking up." Arcuri rates Applied Materials market perform and Deutsche Banc has not performed banking for the company.
Fellow chip equipment company Novellus (NVLS:Nasdaq - news - commentary - research - analysis)similarly projected a downcast outlook at the end of November during its midquarter update, when it trimmed its forecast for bookings in the current quarter. Novellus braced the Street for a loss in first-quarter 2002, falling from a projected 11 cents a share profit in fourth-quarter 2001, which ends this month.
The Street expects Applied's revenue to fall another 20% to $1 billion from the fourth to the first quarter, according to estimates at Multex.com. Current analyst consensus predicts that the equipment giant will dip into the red for the loss of a penny a share, after posting a 3-cent profit in the fourth quarter.
Arcuri believes that chip equipment fortunes may not mirror the chipmakers' recovery this cycle because of its severity. "In prior times, utilization industrywide at the trough was in the 75% range," he says. "Now we're in the high 50s and low 60s. Companies have not utilized their existing equipment this meagerly since the early 1990s." Which means that when chip companies pick up, it could take a few months for them to get back up to the point where they need new equipment. "I don't know that there's a snapback effect this time with capital equipment," Arcuri argues.
With its latest round of layoffs, it seems as though Applied Materials is counting on more quarters out in the cold.
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